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Dear John – what should I look for in a term deposit?

Q. I have a large chunk of savings that I want to use as a deposit for a new home. I think I should put the money away in a term deposit so I’m not tempted to spend it on other things. What should I look for when choosing a term deposit – is interest rate the most important feature?

A. It’s great that you have set yourself a goal of home ownership and that you’re saving hard to make it a reality.

Although interest rates for savings accounts have fallen over the last two years in line with the RBA cash rate, generally speaking you should still be able to get a better interest rate by locking your money away in a term deposit.

A term deposit would be a great way to remove temptation if you think the lure of a summer holiday or shiny new car might be too much to resist.

It’s important to do your research and shop around when finding a term deposit that’s right for you. The different features to consider include:

Interest rate – definitely one of the most important features of a term deposit, but not in isolation without considering these other points.Fees & charges – check if the bank or financial institution charges any annual, set up or other ongoing fees.Interest payments – make sure you know when your interest will be paid, e.g. at the end of the loan term, annually or at regular intervals throughout.Term maturity – find out what happens when the term deposit matures (ends). Does it roll over into another term that you’re locked into if you don’t withdraw your money? Will that interest rate be as high as your initial interest rate?Break costs – if you break your term deposit early, you may be penalised so make sure you don’t select a term that’s longer than you’ll want.

Do you have a question for John? Leave it in the comments below and check back each Sunday to see if your question has been answered!

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About John Symond

John Symond is the Founder and Executive Chairman of Aussie. Widely credited with bringing competition to the Australian home lending industry, John forced the banks to drop their mortgage interest rates and lift their service levels. He is well known as a consumer champion, and is passionate about helping all Australians to achieve the dream of home ownership and be in a better financial position.

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